Pipeline Giant Kinder Morgan Gains After Wednesday Selloff

By Dimitra DeFotis

With a network of terminals and 80,000 miles of oil and gas pipelines crisscrossing the U.S. and Canada, Kinder Morgan has the largest midstream energy business in North America.

And along comes an upstart research firm recommending a Sell. Today Kinder Morgan (KMI) and Kinder Morgan Energy Partners (KMP) shares are up about 1% apiece.

But Kinder Morgan fell 6% Wednesday, while KMP fell 4.5% on news that an independent researcher recommends the rare Sell rating on an energy master limited partnership. Deutsche Bank and Credit Suisse analysts are swinging out in defense of Kinder Morgan, though no one has seen the negative report from Hedgeye Risk Management Analyst Kevin Kaiser. It is being withheld as Hedgeye builds sales demand with a Twitter campaign.

Those parsing what’s available seem to think the Hedgeye report takes aim at Kinder’s accounting for maintenance spending, its acquisition strategy and its commodity hedging. Sounds much like the topics in the Hedgeye case against Linn Energy (LINE).

What we do know is this from Kaiser’s Twitter feed Wednesday:

“This AM we added SHORT KMI, KMP, KMR, EPB as new Best Idea. Full report out to clients on Tues 9/10 …. I think that this report that we will put out … is a public service – I really do. We will post select free content in future.”

Kinder Morgan’s corporate structure is convoluted. Kinder Morgan is the general partner, which reaps distributions from underlying businesses. It pays a 4.2% yield. Kinder Morgan Energy Partners,the main pipeline MLP enterprise, pays a 6.5% yield in the form of a cash distribution like most MLPs. Kinder Morgan Management (KMR) was created to pay distributions in shares given the tax-and-accounting headaches of MLPs. But KMR still offers tax deferrals. Following an acquisition, Kinder also controls El Paso Pipeline Partners (EPB), whose yield is 5.7%. Kinder’s chief financial officer said that the enterprises could be combined at some point. Post from the industry’s biggest conference in May here.

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There are 7 comments

SEPTEMBER 5, 2013 1:36 P.M.

4close wrote:

Interesting stories from hedge eye. It seems that this may be a way for hedge funds to short companies as the negative stories come out and perhaps that is the goal of the story rather than helping investors that are not just trading. I realize the hedge fund space has generated some of its own issues and lost some money too. Not sure this is the best recovery path. Just a thought....

SEPTEMBER 5, 2013 1:46 P.M.

Kevin Quail wrote:

The SEC should be investigating Hedgeye and Kevin Kaiser, as I understand this is his first job out of college and that he's a college buddy of Hedgeye's CO, who has made some spectacularly wrong calls in the past. These guys are trying to make money by manipulating the market in the cases of Linn Energy and Kinder Morgan. Why Barron's wants to put their own credibility at risk by listening to these guys is beyond me.

SEPTEMBER 5, 2013 1:49 P.M.

palestone wrote:

Oh, good. Now, in addition to being wrong about Linn Energy, Hedgeye is even more obviously wrong about Kinder Morgan. This will help Linn, and make Hedgeye increasingly irrelevant.

SEPTEMBER 5, 2013 1:55 P.M.

Jimmy wrote:

Calling Hedge Eye short seller scamsters "independent researchers" is a huge stretch of credibility. They publish bogus research reports to drive down stocks they have shorted. They are thieves in suits. Barrons has written articles in support of these short sellers contributing to their scams.
LNCO was last target. Now, Kinder Morgan. Who will be next?

SEPTEMBER 5, 2013 3:41 P.M.

Ronharv wrote:

Barron's functions as Hedgeye's lapdog as Hedgeye shorts stocks then runs a negative campaign to drop the stock price. They're careful to avoid accusing anyone of outright illegal practices but don't hesitate to embrace unethical behavior, as it works to bring in money. And making money, however ill-gotten, is what matters, right?

SEPTEMBER 5, 2013 3:48 P.M.

oldguy wrote:

Like the other commenters here, I'm sceptical about these upstart would-be hedgies, with questionable credibility (at best), and limited experience. CEO famous for a really bad market call, and brash frat-boy turned analyst, posting snide comments on Twitter, but no facts or analyses to back it all up. I wouldn't be surprised if the ballyhooed research turned out to be rather hollow.

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